30 May Can creditors take money from this POD account?

Q. If a Payable on Death account is set up for one person, and that person has debts owed to the IRS or anything else, can liens be put on that money at anytime after the death of the owner who set it up?
— Concerned

A. It’s a good question.

In New Jersey, when the owner of a POD account passes away, the funds in the account pass directly to the named beneficiary without going through the probate process.

This means that the funds in the POD account generally do not become part of the deceased person’s estate and are not subject to probate proceedings, said Marnie Hards, a certified financial planner with Aznar Financial Advisors in Morris Plains.

Once the beneficiary of the Payable on Death account receives the funds, those funds can technically become fair game to the creditors of the beneficiary, she said.

“If the beneficiary on a Payable on Death account has an outstanding IRS debt, the IRS may attempt to collect the debt by placing a lien on the funds in the account,” she said, explaining that a lien is a legal claim on the property to secure the payment of a debt.

Additionally, she said, non-spouse beneficiaries may have to pay inheritance taxes on a POD account depending on the inheritance tax rules in your state.

In New Jersey, beneficiaries other than “Class A” beneficiaries, which are spouses, parents, children and grandchildren, will be subject to an inheritance tax at rates ranging from 11 to 16%, she said.

She recommends you consult with a professional who can review your situation because the details of your concerns may change your overall financial planning related to this account and any debts that should be considered.

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This story was originally published on May 30, 2023.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.